Since launching in the US in September 2022, Pinduoduo’s overseas discount platform Temu has scaled to 38 markets around the world, surpassing 100m app downloads globally and taking the top spot for app downloads in key markets such as the US and the UK. But as still a relatively unknown marketplace to many, we take a closer look into Temu’s strategy, scale and long-term outlook, outlining what this means for CPG brands.

Temu’s strategy since Sept 2022

While Temu is a newcomer to the retail sector, it is owned by China-based Pinduoduo – the world’s third largest retailer and pioneer of the group buying model, which enables shoppers to club together to receive discounts on purchases. Like Pinduoduo, Temu operates as a marketplace, connecting buyers and sellers directly on its app, but it does not currently use the group buying approach.

Temu’s growth has been driven by its aggressive customer acquisition strategy, with the platform spending heavily on conventional advertising to drive awareness (it notably aired a commercial during the US Super Bowl), while also relying on gamification tactics to engage shoppers. For instance, it encourages users to share the app with friends in exchange for free products and coupons.

Temu operates as a mass merchandise marketplace, with a wide-ranging assortment capturing millions of SKUs across multiple categories, however there are few branded or recognizable products. Its biggest focus is fashion (approximately 60% of SKUs), with the remaining assortment spread across general merchandise and non-food categories such as electronics, pet, beauty and toys. Temu’s prices are highly competitive, often undercutting other leading marketplaces like Amazon – which notably excluded Temu from its pricing algorithm in the US. However, delivery, while free, is much slower than local platforms, with products shipped from China and most shoppers receiving their items within two weeks.

Temu relies heavily on marketing to engage consumers, with daily emails and app notifications sharing personalized offers, mystery gifts and discounts, along with ‘trending’ and ‘limited time’ promotions to drive excitement on the app.

Scale and growth from discount approach

Temu is currently operating in 38 markets around the world, with the strongest presence in North America and Europe. Its discount approach has gained traction from consumers seeking value during inflationary times, and is often compared to Chinese fast-fashion retailer Shein, which has gained significant scale in the US. While still less than 5% the size of Amazon in GMV, Shein now ranks within the top ten online retailers in this market.

Pinduoduo is yet to report Temu’s earnings separately from the wider business, but continues to reinforce that GMV remains "small" and the platform is still building early learnings across different markets. Estimates indicate that the platform is on track to generate between US$2–3bn in GMV in 2023, with a target of reaching US$30bn GMV within the next five years, which would rank it within the top 20 online retailers globally. While Temu’s owner Pinduoduo grew rapidly at a CAGR of over 200% during its first five years of operation, reaching over US$200bn in GMV, Temu’s growth trajectory is reliant on many other factors, particularly its ability to tailor its strategy to the cultural and competitive nuances of different markets.

Source: Edge by Ascential Retail Insight, September 2023

Temu’s future outlook and key takeaways for brands

At a time when marketplace competition is high – with the likes of TikTok Shop, Shein and Alibaba’s Tmall all expanding internationally – Temu will need to carve out a clear positioning for its platform to compete effectively with other online competition. While its discount prices are an obvious initial pull for consumers, repeat purchasing and retention will be important if Temu is to succeed, with many still skeptical about product quality and delivery timelines.

Looking ahead, brands should consider:

Market Outlook

As Temu’s first and largest market, the US can be seen as a testbed for Temu to evolve and adapt its strategy, providing brands with insight into the platform’s future direction of travel. Temu will continue to add more markets to test local adoption, with a recent notable launch in the Philippines marking the platform’s first presence in the highly competitive Southeast Asia region. While Temu’s front-end website will continue to scale, its growth targets will only be fulfilled if back-end warehousing and logistics can keep up – currently, the marketplace uses an asset-light supply chain which is reliant on the ability of third-party providers in its local markets to fulfil orders.

New route-to-market

At present, the sales opportunity for global CPGs is limited as Temu’s assortment is dominated by third party China-based sellers who are already tapped into Pinduoduo’s network of manufacturers in China – many of whom are suffering from a decline in domestic consumer spending and are seeking alternative routes to grow. More recently, Temu has started to seek out local sellers to onboard, which could support a broader offer of products and brands in the future, and potential selling opportunities for recognized brands.

A disrupted value chain

The near limitless assortment of Temu has potential to open the door to competing third party brands, as well as bad sellers and counterfeit products. As Temu scales, legacy brands operating in relevant product categories should monitor the platform to flag instances which may threaten brand credibility. Temu continues to heavily subsidize sellers, while its deep discounting and advertising approach will limit profitability in the short-term. Estimates suggest it will lose significant amounts of money this year and sustainable growth is a long way off, although it does have the ability to lean on the resources of the broader, profitable Pinduoduo business.

New approaches to shopper engagement

While not necessarily a viable sales platform for CPG brands at present, brands should view Temu as an example of the international commerce formats that are gaining traction in the West. For example, Temu relies heavily on social commerce-style experiences that are succeeding in building excitement and engagement with app users. From creating ‘trending’ product curations, to offering highly personalized algorithm-driven product recommendations, brands should consider how these different formats may be applied to shopper engagement strategies elsewhere.